August 2009 Archives

In many industries, the need for foreign workers and an intimate familiarity with United States immigration policy has existed for decades. Large corporations, particularly those in information technology, have in-house attorneys and human resource departments that have developed systems to handle the processing of foreign employees. For these corporations, the question whether or not to hire foreign workers is an easy one. It's a "been there, done that" scenario. When a department head decides a qualified foreign employee exists for a position they have been unable to fill domestically, the corporate wheels are set in motion to sponsor that worker for a temporary working visa or for permanent employment in the United States. These companies are familiar with the steps necessary to sponsor foreign workers for the various U.S. Visas, including obtaining labor certification for permanent employees.

The decision is much more difficult for smaller businesses interested in hiring foreign workers. Often, new and growing businesses are presented with an unexpected opportunity to hire a foreign worker. Their first impulse is to shy away from the prospect no matter how appealing. Unfamiliarity with immigration policies, fear of excessive legal expense, government red tape and uncertainty overwhelm the small business owner. Business owners should take a pragmatic approach understanding first that United States policy is to admit foreign workers only where it does not come at the expense of U.S. citizens willing and able to take the same position at the prevailing wage. Thus, cheap labor shouldn't be a consideration. Instead, businesses should weigh the need to fill a particular position with a foreign candidate against the costs associated with sponsoring that worker. Costs include attorney fees, filing fees, costs associated with advertising for qualified domestic workers to fill the position and delay in bringing the prospective employee on board. If the employer values the qualifications of the prospective employee enough (often a subjective consideration), paying an immigration attorney to start the process may be a cost effective option.

Consulting a San Diego immigration attorney is the best first step. An immigration attorney will walk the prospective employer through the process explaining the necessary steps, the time it will take to complete those steps, and the associated cost.

In today's San Diego commercial leasing market, some business owners are taking advantage of increased bargaining power when negotiating lease terms. Others see an opportunity to purchase property as the commercial real estate market continues to decline in value. The primary advantage of buying commercial space over leasing is the generation of equity over time via market appreciation. There can be no doubt that there are some real bargains in San Diego today, and the potential for equity growth is strong. However, the decision to buy commercial property instead of leasing requires thoughtful consideration.

One of the most important considerations is the balancing of a growing business' cash flow against the 20% down payment generally required for the purchase of commercial property. If a down payment depletes needed cash flow from a new or growing business, it's likely not the time for a risky real estate investment. If a business has excess cash in its coffers for capital investment, there may never be a more obvious time than now to snap up a great value. Most businesses, however, are somewhere in the middle and will want to prepare a detailed evaluation of both options analyzing net present value cash flow (taking into account the anticipated appreciation of purchased property versus anticipated rental increases, interest rates, costs associated with lease expiration and other expenses over the term of the lease), the value of the respective locations to the business, growth considerations, cash flow needs and opportunity costs (potential economic gains from the alternative use of cash). Moreover, in many cases commercial properties have multiple units adding to the complexity of the decision. With multiple units comes the potential for additional income, but also additional responsibility and the risk of unleased space. These considerations are especially difficult for start up businesses which require greater flexibility. Start up businesses will want to attach greater weight to its cash flow needs.

The idea to purchase commercial property instead of lease is often an accident. Businesses stumble across property for sale as they search for suitable leasing space and see an opportunity they hadn't previously considered. Whatever the reason, the benefits of ownership are appealing. It allows for complete control over the property, equity growth (especially in the long term), long-term customer relationships and permanent visibility in the community. The benefits are even greater in today's real estate market where bargains are plentiful. Consult a commercial lease attorney and/or a commercial real estate professional for assistance.

Credit card companies' decisions to unilaterally lower credit limits can have a severe impact on start up San Diego businesses. During recessions, high unemployment rates drive many to consider going out on their own. As they contemplate the decision, young entrepreneurs often factor in their credit worthiness. Start up costs and monthly expenses loom heavy. In addition, the young business owner worries about personal expenses. If possible, they set aside funding to help pay personal expenses six months out or more providing breathing room while the business has an opportunity to grow. Credit worthiness provides comfort during these initial months and impacts a business' future ability to obtain company credit.

Today, many young entrepreneurs with a history of responsible financial planning and credit management are unexpectedly finding themselves with lower credit scores despite exceptional credit histories. Credit companies are reevaluating credit reports and lowering credit limits based on high balances on other revolving debt despite the fact that their customers have stellar records with them. The negative impact is twofold: first, needed credit lines disappear; second, credit scores are lowered making it more difficult to look elsewhere for alternative credit lines particularly in the midst of this current credit crunch. For the entrepreneur, this can be devastating.

While many argue the practice is legal, there can be little doubt that there is something inherently wrong with it. There are alternative ways for credit card companies to reduce their risk profile - namely higher standards for new applicants. Penalizing good customers is a tough model to stand behind while maintaining even a modicum of goodwill. More importantly, credit customers rely on the good faith of the companies they decide to pay interest to. They had other options at the time they selected which card to apply for and use. They cannot go backward and elect a different company (one of the many credit card companies today that are not engaged in the practice of lowering limits). And worse, their current options are limited because of the lower credit score. Other creditors are raising interest rates instead. While not very pleasant for customers, it is far less impacting than reducing lines of credit and lowering credit scores.

Property owners in San Diego know that their commercial leases are valuable assets. In the face of a struggling market and conflicting input from accountants and lawyers, they recognize the benefits that a long term existing tenant offers. They are inundated with bad news from the media. The San Diego Union-Tribune tells them that the commercial real estate market will not begin recovering until late 2011 or early 2012. They are reminded daily of the recession and its particular affect on the San Diego leasing market because of the abundance of "For Lease" signs around town. While well capitalized REITs (Real Estate Investment Trusts), pension funds, insurance companies and other large commercial property owners should weather the storm, mid-level and smaller companies face difficult times, especially those that purchased at the peak of the market.

Many would rather accept a short or long term rent reduction than face the prospect of losing their tenants to failed businesses. The solution is particularly attractive to smaller-scale landlords facing vacancies rates approaching 25%. By offering rent reductions to help potentially failing businesses survive the recession the property owner not only keeps the particular space filled, she strengthens the business relationship with the tenant and creates a goodwill that cannot be valued highly enough. In addition, the business owner is less tempted to take advantage of the lease opportunities offered elsewhere around the San Diego County.

Under the right circumstances, rent reductions offer a viable business solution to a tough economic dilemma. This is a forward looking approach that leads to long term prolific relationships. When the time comes for current tenants' businesses to expand, they will look to the property owner that took care of them during hard times first. Rent reductions present a short term practical solution for the commercial property owner while simultaneously creating invaluable goodwill. Consider contacting a San Diego business lawyer to evaluate your lease.